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UK businesses look to mergers and acquisitions to boost growth

UK businesses appetite for M&A has risen significantly since the start of 2011, according to research by Royal Bank of Scotland Corporate & Institutional Banking (RBS CIB).

More than half (58%) of mid- to large-sized UK companies are now actively considering acquiring a smaller business in 2012, up from a third (34%) from earlier this year.

Businesses are also increasingly looking abroad for targets. The number of firms looking to buy or merge with an overseas competitor has more than doubled since the start of the year, to 28% from 12%. RBS's research asked directors and executives at UK firms with a turnover of over £25 million.

Commenting on the findings, Tim Boag, managing director, Structured Finance, RBS Corporate & Institutional Banking, said: "Tough times can create opportunities for mergers and acquisitions. Mid-corporates have generally strengthened their balance sheets over the last few years and this reflects a more bullish mood compared to earlier this year. Whether this feedback translates into actual deals in 2012 remains to be seen as the economic outlook is uncertain."

Despite the economic uncertainties 55% of respondents said that they were confident that their company's revenue will grow in 2012, compared to 16% saying it will fall and 29% saying it will stay the same. Asked what the biggest impediments are to the growth of their business, most (32%) said market competition, with the tough macro-environment second at 22%, and regulation/excessive red tape third (17%).

Other key findings

  • A third (33%) of firms are looking at mergers and/or acquisitions (M&A) with a similar-sized business, either in the UK or overseas. This is twice as many (15%) since the last RBS CIB's survey, conducted at the start of 2011. Similar increases are reported by those looking purely at domestic UK M&A (up from 12% to 21%)
  • For firms with an annual turnover of between £50m and £100m, 39% of directors said that international M&A was on the radar for next year. Overall, the least favoured strategy for growth in terms of M&A is seen as either selling the business outright (5%) or merging with a larger business (3%) – though, in the case of the latter, over one in ten (11%) directors working at firms in this revenue bracket admit they are considering merging with a larger firm in 2012

Are you planning any of the following activities in the next year to promote the growth of your business?

Source: Royal Bank of Scotland Corporate & Institutional Banking

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